Govt proposes law change to require overseas retailers selling goods to New Zealanders online to start paying GST; Change won't necessarily cost online shoppers more

The Government is proposing to require overseas companies that sell goods online into New Zealand to start paying GST from October 1, 2019.

While the change would even the playing field between domestic and overseas retailers, it wouldn’t necessarily mean consumers would have to pay more for their online shopping.

Here’s why.

The Government would like to require offshore suppliers to pay GST on goods sold to New Zealanders if they’re worth less than $1000.

Offsetting this cost, it wants to remove the tariffs and border costs these suppliers pay if their consignments to New Zealand are worth less than $1000.

It wants Customs to keep collecting GST and other duties at the border for consignments worth more than $1000.

So because most imported goods valued below $400 do not currently have duties and cost recovery charges slapped on them, they’ll become more expensive once GST is added.

However some goods valued below $400, and all goods valued between $400 and $1,000, would be cheaper.

Here’s an example from the Inland Revenue on what the changes would mean for consumers:

Coming back to the offshore suppliers, the proposal is for them to be required to register and return GST if their total taxable supplies in a year to consumers in New Zealand exceeds $60,000.

This is the same threshold that applies to domestic businesses and to offshore suppliers of cross-border services.

Finally, under the proposal, offshore suppliers wouldn’t be required to collect GST on goods supplied to GST registered businesses.

A matter of fairness

Revenue Minister Stuart Nash says GST has been collected on services and digital products from offshore, such as streamed movies and music, since 2016, so the changes extend that to goods.

While the IRD "conservatively" estimates they'll see an additional $278 million in tax revenue collected over two years to 2021/22, Nash says they’re mostly aimed at making the system fairer.

“There are about 26,000 small businesses in New Zealand employing more than 62,000 people in the retail sector. Many are in competition with foreign firms who sell exactly the same product into our market without collecting GST,” he says.

“Our new rules have been endorsed by the Tax Working Group and will be broadly similar to those introduced by Australia in July. The EU has also committed to following this approach.”

Nash says the bill amending the GST Act will be introduced to Parliament later this year.

Overseas suppliers need to play ball

EY Partner Paul Smith says the Government has been savvy enough to introduce a proposal designed to avoid consumer backlash.

However, he says the Government is banking on overseas suppliers complying with the rules. If they don’t, it could be a “disaster” from a revenue collection perspective.

Smith notes: “The Australian Government has been successful in getting 700 overseas suppliers to register for GST in Australia. They funded an international roadshow for the Australian Tax Office to promote compliance overseas. 

“The newly restructured IRD is stretched and won’t have this luxury, but IRD will use cross border sharing agreements to target overseas merchants.”

'Imperfect, but substantive step forward'

Having campaigned on the issue for years, Retail NZ welcomes what it believes is an overdue law change.

Its public affairs general manager, Greg Harford, says: "The proposal is in line with international practice. For example, Kiwi retailers selling into Australia already have to pay Australian GST, and low thresholds apply in most other markets. 

“While the solution is not perfect, it is a substantive step forward at delivering a level playing field for New Zealand businesses.

"More than three-quarters of all sales from foreign websites come from a relatively small number of large businesses that make more than $60,000 worth of sales into New Zealand, and the average foreign transaction is around $114 in value. The vast majority of foreign purchases will therefore incur GST.

"Customs Duty is still charged on a number of items in addition to GST when they are imported by New Zealand retailers, and the Government's proposal does not deal with this issue.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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30 Comments

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Good luck on that....

"Overseas businesses that sell goods to consumers in (New Zealand) will need to register for GST if they meet the ($60,000) GST registration threshold, collect the GST on sales and remit the GST to the (IRD)"
As you say, good luck with that!

I love how politicians always use words "fairness", "justice" and "transparency" when they talk. They have to repeat these words all the time because what they do is often the opposite of any of these words.
Just think how ironic it is that the party that has no issues accepting money from dubious foreign sources call itself "National".

So it's just going to be an honesty based system. New Zealanders can import up to $1000 of goods free of tax, duty and customs charges. On the understanding that the overseas seller will magically be aware of the tax laws of a tiny country at the bottom of the world and even if they are that they will bother to comply. This scheme has holes you could fly a 747 freighter through. It will catch the big players like Amazon who won't have plausible deniability. But opens up opportunities for multiple small operators to sell via Shopify stores and be compliant with the GST law. Could be worthwhile for the combined markets of Australia and New Zealand. They will have a significant cost advantage over local retailers. 500 - 1000 dollar order of clothing or shoes would usually incur an additional $184 - $317 of duty, GST and customs fees.

Why would Amazon bother? Their annual turnover is getting to be in the vicinity of NZ’s GDP. NZr’s need Amazon more than vice versa. We can source items on Amazon that will never ever be available at retail in NZ, that facility alone goes far beyond simple pricing outcomes and so called competitiveness. The whole damn thing will evolve into a convoluted bureaucratic stuff up costing more than it collects. Government for the people? Don’t think so.

Amazon will either comply or just shut down sales to New Zealand. They set up their own operation in Australia to service that market. But they won't bother for New Zealand. Just leaves a gap in the market for smaller operators that want to sell to NZ. The tide of retail reality cannot be turned back. Selling products way above what they are sold for in overseas markets. Just to support a brand infrastructure (salaries, real estate, advertising and all of the associated bollocks) in New Zealand is no longer viable. It's 2018, not 1978. With a few exceptions. If you can't put it on the shelf for the same price as in London, Los Angeles or Sydney and make a profit then you are toast.

Why would Amazon take any notice is my question? Customer pays, they post off the goods......is there any consequence to Amazon by ignoring nz jumping up and down at the bottom of the world?

Amazon would be one of a handful of overseas sellers that will not have plausible deniability. They will be told at the appropriate management level about the rules and how they go about compliance. They have a choice to comply or not. But to continue to sell to NZ and openly flout our tax law will just get messy. There would likely just be an ever-growing pile of Amazon parcels in a corner of the International Mail centre gathering dust.

How would you know its sourced off amazon... how would you know if the tax was paid or not? The hold up and disruption to postal services would create an absolute mess. The cost of implementation (think storage, manpower, it systems required...and on it goes). The public/business outcry far greater than any tax collected.
Not gonna happen.

They will block NZ consumers from accessing their international sites, which is what they did in Australia. As NZ doesnt have an Amazon NZ site, we will be blocked completely.

Agree totally and there is as well thousands of sub sellers on Amazon that will fall into the small operator category. Virtually all Amazon are doing is facilitating the transaction and securing payment and service for seller and buyer respectively. So if Amazon chooses to give NZ the fingers, we are shut out from those outlets as well.

If a retailer or wholesaler can import products at wholesale price and spread the shipping price over an entire container load. How is it possible that I can buy just 1 of those items at the full retail price from an overseas seller and pay for it to be posted halfway around the world to my door and it's still cheaper than buying it off the NZ retailers shelf. While that situation continues. People will find a way to buy from overseas GST or No GST. But the no GST option will be freely available for anyone who knows how to use Google.

Yes of course they will. And this sledgehammer to kill a gnat approach simply encourages it. This is fast becoming the most tax grab obsessed government we have ever seen and that’s saying something given some of their previous times in office. If retailers think this is going to make one modicum of improvement to their market share, then they are simply deluded.

As I've always understood it, in the case of AliExpress it's because their expertise is in logistics. You wait longer delivery times because your item is shipped with many others they're sending to the same destination, saving them money on the logistics side. Great model.

Part of it is because China is classed as transitional nation under the Universal Postal Union treaty, so they pay a reduced rate for international postage. Their packages are subsidised by our governments.

This is potentially one thing that Trump has got right: https://www.bloomberg.com/news/articles/2018-10-17/trump-is-said-to-plan...

Aha, I wondered why I seem to be able to buy a $4 item and it turns up by courier 10 days later. It would cost more to courier it from Auckland even if the thing itself was free. I assumed it was the Chinese government subsidizing them, not us. I should have known better.

You couldn't make this stuff up. Thanks for the link.

So the US postal service is haemorrhaging billions and part of the reason is they are subsidising Chinese online sellers with cheap delivery rates for their parcels. Under the rules of an ancient postal treaty administered by the United Nations. What took Trump so long.

The price differential between, say, AliExpress and any NZ B&M retailer is such that adding 15% onto the former will have precisely zero effect on the purchase choice. So the Tax Take, assuming the overseas retailer actually records the sale appropriately, will be a trickle, not a flood. After all, halving the declared Goods content and substituting a local (offshore) Packing, Admin, and Posting charge (all non-GST-able as the services are undoubtedly delivered outside NZ) would seem to be not only feasible, but completely unverifiable. Trickle halved.....

If local bricks and mortar stores want our business how about operating a bit more competivelly rather than whine about on-line sales.

1. Stay open past 5:30 pm. Seriously how are people who work during the day supposed to shop there?
2. So much staff standing around. So much expense for the owner and ultimately customer.
3. Margins are ridiculous. How can I (one person) source goods on-line for about 1/3 the price charged at the store which hopefully has a more sophisticated supply chain than I. This includes my shipping costs. Here's looking at you Life Pharmacy and the Warehouse.
4. Observing the above points does nothing to build any sort of customer loyalty for getting fleeced. Take a page out of Amazon's book and treat customers with respect.

I don't think that would help much. The variety/choice online is massive. Retailing is an old model, it will have it's place, but continue to shrink.

Next step will be 3d body imaging and clothes/shoes made exactly to your unique size...and a hologram to show you you'll look before you buy..

If it were that simple, don't you think retailers would have already done that. Retail business is rapidly shrinking and many are closing down. Just look at the likes of Topshop in Auckland.

At face value it looks like they are fleecing customers off. Fact is that overheads are very high - staff wages, rent, transport etc are ever increasing while the public are demanding cheaper and cheaper prices.

F.T.Tax would help.

Just too damned simple

The NZ government can't even stop people being illegally employed in queen street, yet they think they can force foreign companies into being unpaid employees of the IRD? Delusional.

“There are about 26,000 small businesses in New Zealand employing more than 62,000 people in the retail sector. Many are in competition with foreign firms who sell exactly the same product into our market without collecting GST,” says Mr Nash.

I am not interested in propping up industries that can't compete.

I wonder how this will effect Youshop service? Would be classified as reshippers under the rules and as a division of government-owned NZ Post, they will need to comply with GST collection. Maybe difficult as they are not a party to the actual purchase transaction so they will need accurate information from their customers that they can legally rely on for GST compliance. But on the other hand, it opens big opportunities to increase their shipment volumes with the $1000 duty/GST free limit and it also simplifies the customs clearance and delivery experience for their NZ customers.

I think it will hone in on your credit card as they can identify the country of the base account from that. There are a lot of USA outfits that won’t accept a NZ cr card, some won’t even let you visit their website. You shop would have a heck of a job establishing and validating accurately, relative values. As an aside if we want to use Amazon USA to purchase and send presents to our friends in the USA are we going to end up paying GST on that? Guess our brown cardigan brigade would say these might just be items that our friends are being used to post to us. You may as well go back to the Muldoon and before foreign exchange regulations where the RBNZ had to issue permits for virtually everything. Roger Douglas at least knew the nonsensical futility of such measures and repealed the lot.

For the record, Amazon refuses to collect GST for the Australian Govt and has blocked Australian users from accessing their overseas Amazon sites (such as the US or UK). All Australian users are directed to Amazon Australia, which stocks about 10% of the overseas products, and sells them for far higher prices. So Amazon have used the GST legislation to effectively screw over Australian consumers by stopping them from buying from their international stores. You can expect the same in New Zealand.

Another example of our pollies & Bureacraps showing they know nothing & understand less.

So whats new we have been getting screwed in NZ by retailers for years. I used to go to Trade Me first but these days I'm going to E-Bay first. There is zero chance of getting GST from sellers in China. As long as your careful on what you buy (there is plenty of fake products) the pricing is sometimes 1/4 of the price in NZ.

It's the government that screws them over, not the corporations.

Why the hell should an international company act as tax collector for foreign governments?

They probably know exactly what they're doing. A few 'donations' from Noel Leemings and Harvey Norman sealed the deal.